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Willis reports US$671 million Q1 2006 results


May 4, 2006   by Canadian Underwriter


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Willis Group Holdings Ltd (NYSE: WSH) first quarter 2006 revenues increased slightly to US$671 million from the US$669 million for the same in 2005.
Willis Group says the effect of foreign currency translation decreased reported revenues by 5% and net disposal of operations reduced reported revenues by %.
Joe Plumeri, chairman and CEO, says that last year the Company made disciplined decisions for the long-term best interest of the Company. These investments, he says, included “investments in talent, processes and technology.”
“We are pleased that the first quarter 2006, with 6% organic revenue growth and improved earnings, reflects the early results of these investments,” Plumeri says.
Of the 6% organic growth in commissions and fees excluding total market remuneration, approximately 6% is comprised in net new business and a negligible impact from insurance premium rates and other market factors. Although Willis says it continues to see rates moderating, the impact is varied geographically and according to product line.
Net income for the quarter ended March 31, 2006 was US$140 million, or US$0.88 per diluted share, compared with US$67 million, or US$0.41 per diluted share, a year ago.
Excluding certain items which affected net income for the quarter ended March 31, 2005, adjusted net income was US$0.88 for the first quarter of 2006 compared to US$0.82 for the same period last year, an increase of 7%. The impact of foreign currency translation reduced first quarter 2006 net income by US$0.03 per diluted share compared with first quarter 2005.
On Jan. 1, 2006, the Company adopted FAS 123R share-based payment and also changed the methodology used to calculate the market-related value of UK pension plan assets. Comparative figures for 2005 have been adjusted to reflect the retrospective application of the accounting changes. Salaries and benefits expense for the quarter ended March 31, 2006 was US$348 million, or 51.9% of total revenues, compared with US$365 million, or 54.6% of total revenues in the comparable period last year, excluding first quarter 2005 severance costs. The improvement in this compensation ratio was helped by both increased revenue contribution from recent hires and the benefit in the first quarter 2006 of a more even quarterly recognition of incentive compensation than in 2005.
Other expenses for the first quarter of 2006 were US$105 million, or 15.6% of total revenues, compared to US$96 million, or 14.3% in the comparable period last year, excluding first quarter 2005 costs related to regulatory settlements and other provisions.
Reported (and adjusted) operating margin was 30.4% for the quarter ended March 31, 2006, compared with a 13% reported margin and 29.1% adjusted operating margin for the same period last year.
Excluding the effects on taxation of amortization of intangibles, disposals of operations and share-based compensation, the underlying tax rate in the first quarter of 2006 was 31.5%, the same as for the full year 2005.
For the full year 2006, Willis Group says it anticipates continued growth in organic commissions and fees. The net impact of the accounting changes for stock options and pension on salaries and benefits and operating income in 2006 is not expected to be significant.
For the full year 2006, the Company expects salaries and benefits expense as a percentage of total revenues to be less than 59% and expects modest operating margin expansion. This outlook assumes a more selective approach toward recruiting opportunities in an environment that remains highly competitive.